November the time to select your coverage

November is when most companies set the deadline for employees to choose their health care coverage for the coming year. Part of that process for more and more people is managing the money in their health savings accounts or flexible spending accounts.

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By Anya Kamenetz

recordnet.com

By Anya Kamenetz

Posted Nov. 18, 2012 at 12:01 AM

By Anya Kamenetz
Posted Nov. 18, 2012 at 12:01 AM

» Social News

November is when most companies set the deadline for employees to choose their health care coverage for the coming year. Part of that process for more and more people is managing the money in their health savings accounts or flexible spending accounts.

An FSA is an option that comes with a regular employer-provided health insurance plan. Employees can contribute pretax dollars and use them for qualified medical expenses. Right now, employers set the contribution limits; beginning in 2013, the IRS will impose a cap of $2,500. For a family of four earning $80,000, that means a tax savings of about $700. An FSA is just a cash account - its funds cannot be invested - and it doesn't roll over from year to year. That means if you have an FSA, December is the deadline to get the family up to date on eyeglasses, dental checkups and any complementary care services.

An HSA comes with a high-deductible health insurance plan. High-deductible plans have lower monthly premiums than other plans, but plan members will pay more out of pocket for medical expenses until their coverage kicks in. That means people who join these plans can save money if they are young and healthy, but they take a greater risk compared to a standard health plan. In 2013, the deductible - the amount plan members pay out of pocket - ranges from $1,250 to $6,250 for individuals and $2,500 to $12,500 for families.

Some high-deductible plans allow members to get preventive care, such as annual checkups free or with a co-pay, but any care beyond that will come out of the member's pocket until he or she hits the maximum.

The percentage of employers offering health coverage that included a high-deductible plan among their options has tripled in the past 10 years to 31 percent, and experts think it will be up to half within another 10 years.

High deductible plans are getting more popular because they save money for employers, but, under certain circumstances, they can save you money, too. The key to saving money with a high-deductible plan is to take full advantage of the health savings account that comes with it.

A health savings account is triply tax-advantaged. First, the money that goes into it can be deducted from your income when you pay taxes. The new maximum annual contribution for 2013 is $3,250 for an individual or $6,450 for a family. That means if your family earns $80,000 a year and you contribute the maximum amount, you could save $1,806 come April 15. While the money is in your account, it can be invested, unlike funds in an FSA, and grow tax-free. Moreover, you don't have to pay taxes when you withdraw it as long as you use it for qualified medical expenses.

Strive to keep enough money in cash in your HSA to cover your deductible in case of a trip to the emergency room. The money you put into the HSA over and above that can be invested in mutual funds, stocks or other financial vehicles, just like a retirement account.

When you've established your HSA or FSA with the help of your company's human resources department or a broker like Vanguard, you can begin to spend it. This is the fun part, as the money in an HSA or FSA can go toward lots of health-related expenses that most insurance doesn't cover.

Tax-deductible expenses for an HSA or FSA include:

» Eyeglasses, including prescription sunglasses

» Many complementary health services, such as acupuncture, osteopathy, chiropractic care, homeopathy and naturopathy, as long as the practitioner is medically qualified

» Psychiatry, psychotherapy, psychoanalysis and addiction counseling

» Dietetic care

» Dermatology

» Hydrotherapy or whirlpool therapy, if prescribed by a doctor

» All kinds of medical devices

Whether you have an FSA and regular health insurance or an HSA and a high-deductible plan, the money in these accounts is yours, so make sure you use it wisely. There is some evidence that those with high-deductible plans and HSAs tend to avoid preventive care, which is terrible for your overall health and your wallet.